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Shop Direct: a transformational affair


Shop Direct has been going through a major transformation as it changes from a catalogue operation into a leading digital business. Paul Miller, director of logistics, explains to Emma Herrod the impact on its logistics operation.
Shop Direct, the bastion of the UK home shopping industry, no longer prints paper catalogues. As it waves off the last Littlewoods catalogue to that great paper recycler in the sky, Shop Direct is re-emerging as a profitable digital-only retailer with ambitions to be world class. It is only 3 years ago that 72% of sales came from catalogue customers, now it is none.

Its different brands, which include Woolworths, K&Co and Isme, have been built up online and merged into the Littlewoods and Very websites. Both of these multi-departmental brands offer credit and a range of goods from fashion through to washing machines.

Products used to be bought into the business for two catalogue seasons a year; now it trades over shorter periods. Clothing and shoes, for example, are traded and sold over a four-to-six week period. The trading teams’ patterns have changed dramatically, processes have been streamlined and they are fantastic at getting quotas correct, explains Paul Miller, director of logistics at Shop Direct. “We buy, source and sell product in a more fluid way that we used to.”

This change in trading has had implications for the entire supply chain from concept and sourcing, through to warehouse management and the carriage team, including returns.

Operationally, Shop Direct has moved from what was a push supply chain to one which pulls product as it’s required, increasing efficiencies and reducing costs along the way. The mechanics and DC infrastructure were founded on an old, but workable, catalogue model, but as the operation moves from push to pull it has found ways in which to become more streamlined by not redoing the same repetitive processes, he explains. For example, the fulfilment centres work improved shift patterns and organise the flow of product in a better way as the business moves to a more continuous inflow of stock.

The different carriage choices offered, including home delivery, Collect+ and locker banks, ultimately mean the customer is pulling product into the different parts of the supply chain as they demand it, including drop ship direct from suppliers. Miller says that he asks where the business and the customer would like it, they tell him and he reacts. A much different scenario to the catalogue-style supply chain push model.

Miller is keen to point out, though, that much of the transformation is “still work in progress”.

The customer is being placed firmly at the centre of the business and it is the many stakeholders – from sourcing through to returns – which have taken up the challenge of the transformation. There are lots of stakeholders and the “big challenge and learning is the management of change,” says Miller. The company has switched all of its employees from looking in one direction to something that’s diametrically opposed, he explains. “We’ve sat down and talked with and listed to all the stakeholders,” he says, explaining how logistics is simply the movement of goods from A to B. “It’s not the be all and end all,” he says, but it does need input from the other parts of the business – from sourcing, treasury, fulfilment, forecasting and suppliers so together “we can deliver the best value to our customers.”

Across the stakeholders they’ve made subtle changes that alleviate the hows, wheres and whens, he explains, so everyone can see the full picture of how product has been brought into the business, where it is located, how much is where and when or whether more will arrive.

As omnichannel retailers have been trying to achieve a single view of stock over recent years, it’s also vital for pureplays to have full visibility in real time and Shop Direct is no different.

Miller explains that with buy-in and communications across the different stakeholders, everybody had to start talking the same language. Logistics – like any other part of the supply chain or wider business – has its own language but information about stock and movement had to be opened up to the wider business with everyone having access to the full picture in real time; as opposed to downloading spreadsheets showing only the part that’s relevant to their function as was previously happening. Dashboards, graphs and other output had to be aligned so everyone could see the single version of the truth of the end-to-end supply chain.

This ‘Compass’ system brings all four of Shop Direct’s distinct supply chains into a single view, so that sea, air, European air and European non-carrier are all accessible by all stakeholders. “Everyone has full visibility and can access the data and make changes rather than just seeing their own piece – and it’s in real time,” say Miller. The solution has been built on the back of the Damco system already used by Shop Direct.

The firm’s ‘ Devices’ data analytics system enables the logistics team to take stakeholders on a journey, explaining, detailing and showing colleagues what’s happening with their shipments and informing them about the cause and effect of changes in the supply chain, such as how the purchase order expected date drives the customer availability date. It also shows stock profile date, expected date when items can go on sale, held orders on sale, and predicts when it will be able to go to the customer. In the first six months of operation, Devices reduced errors from 31% to 8% and Miller expects this to continue. “It puts the data in a way that everyone understands,” he says, explaining that with more information in the business going to the people who trade, the more you can influence demand and have product where it’s needed.

Putting the customer at the heart of the business and demystifying the language used in logistics has also brought about a change in the metrics upon which the logistics operations are measured, to make them more appropriate to the customer. These include landed margin, stock availability and time to market.

Improved efficiency has been achieved by eliminating errors in areas such as documentation. One project that Miller’s team has completed is the introduction of an end-to-end electronic document system (EDI) with GXS which reduces keying-in errors in purchase orders, receipts, banking and supply documentation. “It also speeds up the process,” says Miller.

One area which Miller says has been in play for a couple of years is the company’s re-evaluation of its buying terms, and its move from taking delivery of stock on a Free On Board (FOB) basis (whereby the supplier is responsible for all costs and delivery to the ship) towards FCA, where Shop Direct takes responsibility sooner. It enables the company to collect part supplies from the back door of factories in China rather than having to wait for the entire purchase order to be completed, Miller explains. It also cuts costs in a number of areas since the company can choose which ports it uses, amend the use of container freight station and the size of containers. These costs are “still being worked through,” says Miller, emphasising that this project is just “a single piece of the change in our jigsaw puzzle”. He adds: “It gives me greater visibility up chain and through Compass gives more visibility to the trading team.”

When asked about other changes to IT and systems, Miller explains that the logistics operation always has a shopping list “but we’re not looking to build some super computer that runs the world”.

From concept and sourcing through managing orders, physical movement, warehouse management and carriage streams, there aren’t that many distinct sections with unique systems. The different parts of the business are working closely together – and with IT – on solutions which use a common language and which glue it all together so stakeholders know how, when and where things are arriving into the business and can track them up and downstream. “We don’t want to tell everyone else how to read a book but offer a tool that allows systems to talk to each other,” says Miller. The goal is to be able to track an event through the supply chain.

He does say though that his systems do have an end of life and that “shipping will need to be developed in line with the business”. Also, whatever suite of systems it implements needs to be placed in such a way that it doesn’t constrain any other part, is fit for purpose and is able to grow as the supply chain expands.

Shop Direct has grown out of the catalogue businesses of the Littlewoods and GUS groups, which offered credit facilities that enabled shoppers to buy items and pay off a set amount each week. From 15 contact centres, 17 brand fascias and lots of employees across different headquarters, the company has undergone a major transformation in recent years. In 2005, its 200 bricks and mortar shops were bought by Primark.

Brands have been integrated, contact centres closed and the headquarters of what has become Shop Direct centred on a former aircraft hangar at Liverpool’s old Speke airport. By 2010, 75% of the company’s sales came from online and the migration of customers to digital channels has continued apace, with mobile having taken over from desktop with more than 70% of traffic now coming via this channel and over half of sales.

The company launched the digital department store in 2009. It has continued to develop the brand and in February 2015 unveiled Very Exclusive to bring top-end high street and aspirational labels to its credit customers.

The last Littlewoods catalogues were printed last year.

Shop Direct announced a third consecutive year of record profits for the financial year ending June 30, 2015, with profits growing by 78% to £71.7m. Group sales were up 3% to £1.8bn.

The biggest part of the transformation has involved its employees; they have been key and everyone has had to buy-in on the projects, explains Miller. “Shop Direct is a very youthful business and dynamic,” he says, adding: “we want to change and develop for the right reasons.”

In order to develop a supply chain, you have to talk a common language and understand the common theme and goal – which in Shop Direct’s case is the customer. He advises that companies have to take their time and not expect to change the world in which they’ve operated for decades in six months. “The management of change is key,” he adds, as is gaining trust and proving that you’re not trying to be some sort of imperialistic dictatorship. “Engagement is key.”

Those levels of engagement across the Shop Direct business are kept at a high level as the transformation continues. Speaking at the recent eDelivery Conference, the company’s group strategy and communications director, Dan Rubel, explained to delegates how the engagement score across the company has risen from 67 in 2010 to its current, world-class level of 81. There has been a massive step change in employee engagement during the transformation and this has resulted in shoppers also being happier. The company’s net promoter score has risen from +18 in 2014 to +40 in 2015.

At the same time, its ethos has changed from being “we want to survive” to “we want to be a leading retailer and better than others”.

“People give us the differentiation against our competitors,” says Colin Watt, director of employee relations and engagement.

Along the way, the culture at Shop Direct has changed too. Part of this has involved finding the company’s purpose of “making good things easily accessible to more people” and by everyone really understanding the core Miss Very customer and how she impacts on their role and responsibilities within the business. Miss Very is between 25 and 45 years old, open to credit and likes to shop for her family as well as herself. She’s interested in fashion, but is not a fashion leader, likes global brands and when it comes to products for her home she prioritises quality and longevity.

One of the things she needs is choice, so Shop Direct does what it promises in terms of delivery offering next day, click and collect and a free option. The Collect+ service, with a network of some 6,000 collection points, is a rapidly growing part of the business and is offered free to customers.

“We’ve been investing in technology where customers really need it,” says Rubel. The company has also had a tight focus on cost with “the best discipline” being the win-win, such as the delivery network which is “good for the customer and for us”.

This also drives a focus on whether something will negatively impact service and continuing with a multi-functional approach internally.

We’ve tried to bring clarity from the business perspective and our people are aligned behind that,” says Watt. The company’s plan, he adds, is to “have the most capable and committed people, free to make the most of their talents, ideas and energy, focused on delivering our purpose, bound together by a set of values and behaviours”.

He says the company stands by those values even when tough decisions have to be made.

The firm conducts an annual survey to measure how happy everyone is and then takes a temperature check after six months. An external organisation runs the survey so staff know their comments are not attributable to them and they can respond honestly. “All colleagues take part and we have high number of respondents and everyone is given time to complete the surveys,” says Watt.

Questions range around how employees feel on a day-to-day basis and whether they would recommend Shop Direct as a place to work. The resulting action plans are then shared across the business so everyone can see what is or isn’t working. Being open and communicating across the business is a crucial part of the process.

One drawback of the speed of the changes and transformation that was identified by the surveys was that everything was moving so fast that there wasn’t time to pause and allow people and projects to be celebrated. This changed eighteen months ago when the Shine Recognition awards were launched to reward people delivering on company values and purpose.

Any member of the Shop Direct team is able to ‘recognise’ up to 5 people each month in the company-wide system and share the story of who and why someone is being recognised. They can either click on a pre-set value or just say a thank you. That person receives £5 from the company and their story is visible to the rest of the business. “When you look at how everyone is celebrating each other, it creates the environment when people are happy to do that and to say thank you,” says Watt. “It creates the right environment to be our best.”

It is also well funded since, of those people who are recognised, CEO Alex Baldock is able to choose ‘recognised superheroes’ who have gone above and beyond what is asked of them. They receive £250. A number of annual superheroes are also chosen and they receive £1,000.

Six years ago, the company founded its People Forums, which consist of 15 groups in different parts of Shop Direct which examine some of the big business issues and come up with action plans. They put forward the views of the people they represent, gauge morale, motivation and engagement. The trade unions are also involved.

However, as Rubel, told delegates, choosing what not to do has been a critical part of what’s delivered the transformation, too, as has been the decisions on where to spend Capex and the wider change resource. This year, the company had double the profitable proposals, so one of the hardest things has been choosing where to invest money, time and innovation. “Our strategy gives us the choices and the guiderails and boundaries through which we operate, where we choose to play and not play, and how we chose to win,” he says.

He closed by saying that they’d all spoken about the things of which they are proud in the transformation to turn Shop Direct into a leading digital retailer. However, he advised delegates going through their own transformations to be careful not to be a legend in their own mind. “We are a work in progress,” he says. Even if you are the best, you need to avoid complacency, be humble and not believe that you have all the answers while staying focused on the customer and keeping the passion and hunger to be brilliant in the things you choose to be brilliant in.

Black Friday
Commercially, Shop Direct loves Black Friday, as do its customers. Its website wasn’t perfect, according to the keynotes at the eDelivery Conference but “we planned and made sure the site and logistics infrastructure were as ready as could be. Last year, saw total collaboration across all departments so everyone knew what was happening.“

This year, planning started in the summer with the experience being tested and optimised across devices and the logistics operation. For Shop Direct, Black Friday is a collaborative effort on what is “the most important day if not the weekend of the year” and the retailer is “making this Black Friday even better” than 2014’s while hoping that it won’t surpass expectations.

This feature first appeared in issue four of the print version of eDelivery Magazine, EDM04.

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